Monday, February 6, 2012

Jobs/ISM Services Index/CVO FCE-A/Added 50 BMLPRJ at $16.8/Bought 1 Albertsons 7.11% Senior Bond Maturing 7/22/27 at 73/Bought 40 AMOT at $5.95-LT/

The Labor Department reported an increase of 243,000 nonfarm payroll jobs in January and a decrease in the unemployment rate to 8.3%. Employment Situation Summary Private sector employment grew by 257,000. The U-6 number continued to trend down, falling to 15.1%. Table A-15. Alternative measures of labor underutilization The government also added 60,000 jobs to its previous estimates for November and December. Average hourly earnings rose 4 cents.

The ISM services index for January was reported at 56.8%, up from 53 in December. The new orders component rose to 59.4 from 54.6.

The VIX declined 4.89% last Friday to close at 17.1. That marked the 11th consecutive close below 20. ^VIX Historical Prices

Forest City Enterprises Inc. Cl A, a recently purchased LT, popped over 13% last Friday after the company announced that it would exit its land development business and focus on its rental properties in core markets. SEC Filed Press ReleaseBought 30 HUN @ 9.91 and 30 FCE/A at 11.58Lottery Ticket Strategy

1. Bought 1 Albertsons 7.11% Senior Bond Maturing on 7/22/2027 at 73 Last Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): This bond is now a SuperValu (SVU) obligation. I recently discussed SVU and have nothing to add to that post. Item # 7  Bought 40 SVU as LT at $6.98 (1/31/2012 Post).

FINRA Link for the 2027 Bond: FINRA According to FINRA, the bond is currently rated at B2 by Moody's and B by Fitch.

My confirmation states that the current yield at my cost is 9.634% and the YTM is 10.587%.

This is a link to the FINRA list of SVU bonds. In addition to the Albertsons acquisition, SVU also acquired a company called "American Stores" which originally issued bonds maturing in 2017, 2026 and  2028. 

Key Developments page at Reuters for SVU.

2. Bought 40 AMOT at $5.95 Last Wednesday (Lottery Ticket Basket Strategy)(see Disclaimer): Allied Motion Technologies has a market cap of less than $51 million at the $5.95 price. It is another statistical buy in my Lottery Ticket Basket Strategy. I am not aware of any analysts that follow the company.  As of 9/30/11, price to sales was .5; price to book was at 1.48; cash per share was at .58; debt was only $428,00; and the trailing 12 month P/E is about 9.68. AMOT Key Statistics The recent peak on the share price was close to $9 last February, reached after the stock hit bottom at close to $1 per share during March-April 2009. AMOT Interactive Chart A quarterly dividend of 2 cents per share is currently being paid by the company. 

I was unaware of this company until the name popped up on one of my screens looking for potential LT buys. 

When performing some research, I read an article at Seeking Alpha which argued that AMOT was an undervalued growth story. 

I also reviewed, as usual, the Key Developments and Profile pages at Reuters. Even with a small LT buy, I will examine at a minimum the last earnings report, either the  SEC Filed Press Release or the last filed SEC Form 10-Q. For the Q/E 9/30/11, the company reported diluted earnings per share of 18 cents, up from 14 cents in the year earlier quarter, on $27.331 million in revenues (up from $22 M). The company also reported a record order backlog. All of the foregoing was sufficiently interesting to me that I added some shares in the LT category. 

Allied Motion Technologies closed at $5.98 last Friday.

3. Added 50 BMLPRJ at $16.8-Satellite Taxable Account Last Wednesday (see Disclaimer): I was in a satellite taxable account, looking at my cash balance earning nothing in a money market account, and decided to risk a few bucks by buying more of this non-cumulative equity preferred floater with a 4% minimum coupon.  

As previously discussed, this traditional preferred stock was originally issued by Merrill Lynch and is now a Bank of America obligation. BMLPRJ does pay quarterly non-cumulative, qualified dividends at the greater of 4% or .75% above the 3 month LIBOR rate on a $25 par value. Final Prospectus Supplement

Given the JIHAD by the Federal Reserve against the Saving Class, now expected to extend to late 2014, the applicable coupon will likely be 4% for a long time. The 3 month LIBOR rate is currently hovering at around .55% and would have to rise above 3.25% during the relevant computation period to activate the floating rate of .75% above the 3 month LIBOR.

The minimum of 4% does equate to a current yield of 5.95% at a total cost of $16.8, and the dividends are subject currently to the 15% cap for qualified dividends. While that is not much for us OGs who remember 20% 3 month treasury bill rates, it does beat zero per cent handily. 

I discuss this type of security in more detail in Advantages and Disadvantages of Equity Preferred Floating Rate Securities, which also contains snapshots of my trades. I characterize non-cumulative equity preferred stocks, particularly those issued by financial institutions, to be a disfavored asset class. This will not prevent me from buying these securities. That characterization will cause me to play their volatility as trades and to limit my overall exposure to small sums.   

Floaters with guarantees do provide a measure of appeal in both inflation and deflation scenarios. If the three month LIBOR rate went to 8%, I would expect fixed coupon securities bought at today's prices to decline in value. The floater may actually rise in price, possibly by a lot, depending on the market's perception about the creditworthiness of the issuer of course. BMLPRJ would have a current yield of approximately 13% at a 8% 3 month LIBOR rate and for a purchaser whose total cost is $16.8 per share.

It is important to keep in mind that non-cumulative equity preferred stocks issued by financial institutions can be extremely volatile in price and would become worthless in the event of a FDIC seizure. Item # 1 Fear and Enhanced Volatility in Certain Classes of Income Securities (8/9/11 Post); Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock (5/13/09 Post)

Bank of America Corp. Dep. Shs (Rep. 1/1200th interest of a share of Fltg Rate Non-Cum Pfd Series 4) rose 30 cents last Friday to close at $17.3. The next quarterly ex dividend date is 2/13/2012.

4. Cenveo (own two 2013 Senior Subordinated Bonds): Cenveo's common stock started to pop some last Wednesday after the company announced that it was selling its forms and business documents group to Ennis. SEC Filed Press Releas The stock closed last Friday at $4.07 and was trading around $3.3 early Wednesday. CVO Interactive Chart The 2013 bond also moved up in price. The company filed last Friday a SEC Form  8-k disclosing that the purchase price was $40 million plus the assumption of "certain liabilities". Importantly, CVO also disclosed that an amendment to its senior credit agreement will allow it to use up to 75% of the proceeds to repurchase its outstanding notes.  Averaged Down by Buying 1 Cenveo 7.875% Senior Subordinated Maturing 12/1/2013 at 81.5 

1 comment:

  1. checkout Thompson Creek bonds (TC) on Fidelity, taking a flier on (3) $97...